City of Federal Way
January 1, 2023 through December 31, 2023
2023-002 The City’s internal controls were inadequate for ensuring
compliance with federal suspension and debarment requirements.
Assistance Listing Number and Title: 21.027 – COVID-19 – Coronavirus
State and Local Fiscal Recovery
Funds
Federal Grantor Name: U.S. Department of Treasury
Federal Award/Contract Number: N/A
Pass-through Entity Name: N/A
Pass-through Award/Contract
Number:
N/A
Known Questioned Cost Amount: $0
Prior Year Audit Finding: Yes, Finding 2022-001
Description of Condition
During fiscal year 2023, the City spent $4,084,370 in federal funding from the
Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program. This
program gives funding to respond to the COVID-19 pandemic’s negative effects
on public health and the economy, provide premium pay to essential workers during
the pandemic, provide government services to the extent COVID-19 caused a
reduction in revenues collected, and make necessary investments in water, sewer,
or broadband infrastructure.
Federal regulations require recipients to establish and follow internal controls that
ensure compliance with program requirements. These controls include
understanding program requirements and monitoring the effectiveness of
established controls.
Federal requirements prohibit recipients from contracting with or purchasing from
parties suspended or debarred from doing business with the federal government.
Whenever the City enters into contracts or purchases goods or services that it
expects to equal or exceed $25,000, paid all or in part with federal funds, it must
verify that the contractors have not been suspended, debarred, or otherwise excluded.
The City may accomplish this verification by obtaining a written
certification from the contractor, adding a clause or condition into the contract that
states the contractor is not suspended or debarred, or checking for exclusion records
in the U.S. General Services Administration’s System for Award Management at
SAM.gov. The City must perform this verification before entering into the contract,
and it must maintain documentation demonstrating compliance with this federal
requirement.
Our audit found the City’s internal controls were inadequate for ensuring staff
verified the suspension and debarment status of contractors for purchases exceeding
$25,000, paid all or in part with federal funds. Specifically, the City did not verify
that four of the 13 contractors we tested were not suspended or debarred from
participating in federal programs before entering into contracts with them.
We consider this deficiency in internal controls to be a material weakness, which
led to material noncompliance.
Cause of Condition
City staff responsible for managing the SLFRF program attended several trainings
to understand its requirements. However, City staff were not aware the requirement
was applicable to costs charged to the SLFRF award under the program’s revenue
replacement provisions.
Effect of Condition
Without adequate internal controls, the City increases its risk of awarding federal
funds to contractors that are excluded from participating in federal programs. Any
payments the City made to an ineligible party would be unallowable, and the
awarding agency could potentially recover them. The City subsequently verified
the contractors were not suspended and debarred. Therefore, we are not questioning
costs.
Recommendation
We recommend the City strengthen internal controls to ensure that all contractors
paid $25,000 or more, all or in part with federal funds, are not suspended or
debarred before entering into contracts with them. The City should also maintain
documentation demonstrating compliance with this federal requirement.
City’s Response
The City concurs that maintaining strong internal controls is appropriate.
Management is committed to taking corrective action to ensure compliance with
federal requirements and in fact did so immediately.
Since the enactment of the SLFRF, city staff made significant efforts to keep up with
the multiple and evolving guidelines rules and FAQs issued by Treasury and
attended numerous trainings. The initial lack of guideline clarity resulted in
information-sharing webinars hosted by reputable state-wide and nation-wide
associations such as AWC and GFOA. City staff, management and governing body
exercised initial restraint in approving projects for spending of SLFRF funding in
order to avoid inadvertently violating a rule issued subsequently. One example is
that exemption from Federal supplanting rules came out in later guidance and the
City then proceeded relying on that explicit clarification.
This is the second finding for the same issue because the timing of requirement
awareness spanned two years. The rule in question was clarified in 2023, after the
City’s opportunity to comply in 2022 and part of 2023 had passed, and the City
acted to correct immediately. The City remains dedicated to ensuring Federal
funds are spent in compliance with all governing laws and regulations. The City’s
immediate change being implemented was to eliminate recipients that cannot
1) register on SAM.gov, 2) contractually attest compliance or 3) provide
self-attestation.
The City believes that adequate controls and procedures are in place and that
internal training and communication are the appropriate corrective steps.
Auditor’s Remarks
We appreciate the City’s commitment to resolve this finding and thank the City for
its cooperation and assistance during the audit. We will review the corrective action
taken during our next audit.
Applicable Laws and Regulations
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards
(Uniform Guidance), section 516, Audit findings, establishes reporting
requirements for audit findings.
Title 2 CFR Part 200, Uniform Guidance, section 303, Internal controls, describes
the requirements for auditees to maintain internal controls over federal programs
and comply with federal program requirements.
The American Institute of Certified Public Accountants defines significant
deficiencies and material weaknesses in its Codification of Statements on Auditing
Standards, section 935, Compliance Audits, paragraph 11.
Title 2 CFR Part 180, OMB Guidelines to Agencies on Governmentwide
Debarment and Suspension (Nonprocurement), establishes nonprocurement
debarment and suspension regulations implementing Executive Orders 12549 and
12689.